New rules seem designed to benefit incumbent taxicabs rather than consumers.

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The battle between the city of Chicago and Uber, a startup seeking to disrupt the taxi and limo industries, heated up this week. Uber has already faced unwanted attention because its pricing model for taxis conflicted with Chicago regulations. Now the city is introducing new regulations for Uber's separate sedan service that the company says could force it out of the Chicago market.

Uber sedans charge based on time and distance traveled. The company's Chicago rates start at $3.50 per mile when the car is moving faster than 11 miles per hour and 85 cents per minute when the car is stuck in traffic. Uber spokesman Allen Penn tells us that this simple fare structure enables "clients to find and pay for reliable transportation in just minutes and drivers to fill their downtime with additional trips that help them increase their earnings."

But Chicago's Department of Business Affairs and Consumer Protection has proposed new rules that would make it illegal for non-taxicabs to charge based on time or distance. The new rules state that car services "may not use any device, including, but not limited to, mechanical, electronic, or digital meters/equipment to measure and calculate passenger fares based on distance and/or time traveled." Instead, the fare "must be pre-arranged." Anyone charging based on time or distance, the department warns, will be considered an "unlicensed taxicab."

Uber says this would be a step backwards. The firm has been in Chicago for the last 15 months, and it says it has happily operated under the city's current rules. Penn told us that charging based on time and distance is "the only way you can summon a car quickly, keep the car for as little or as long as you want, and hop out without negotiating and transacting with the driver." He said that negotiating fares in advance via the company's mobile apps would be too cumbersome.

Penn also emphasized the importance of allowing new car services to develop innovative business models. "The proposed regulations cut against Uber's goal as a business to allow consumers to push a button and get a car," he said. "Uber is not Uber in an environment that restricts technology."

We contacted the city, but they were tight-lipped about the reasons for the change. "We are committed to working with companies that offer Chicagoans more transportation choices, more certainty, and higher quality customer service options," a spokesperson told us by email. We pressed her for details about why the new rules were needed, but she did not respond to our follow-up email.

Chicago wouldn't be the first city to enact regulations hostile to Uber's business model. This summer, the Washington, DC city council proposed regulations that would have forced Uber to charge at least five times the minimum taxi fare, effectively pricing Uber out of the taxicab market. The authors helpfully explained that this change was designed to "ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service." The proposal was withdrawn after Uber successfully stoked a public backlash against regulations that seemed to benefit incumbent taxicabs rather than consumers.

The same critique seems to apply to Chicago's new regulations. Obviously, Chicago taxicabs would rather not compete with Uber's black car service, and so incumbents are likely to welcome regulations that ban sedans from adopting taxi-like pricing. But it's not clear how consumers benefit from such a prohibition.

The new regulations have not yet been finalized. The public has until November 9 to comment on the city's proposal.

Promoted Comments

I am typically against intrusive regulation, but one has to ask, why is there taxi regulation in the first place?

First, there's various licensing requirements aside from the fare regulation. The cities have an interest in making sure that riding in a cab is safe and that whatever the fare structure may be, the cabbie doesn't screw the customer. For example, even if cabs were allowed to set their own fares, you'd want a system to make sure the meters were accurately tallying the agreed fare.

But it even goes beyond that. NYC ended up implementing flat-rate fares to/from some of the airports, because so many tourists were complaining that they would end up charged 3-4 times the appropriate cost of the trip. (If you're not from NYC, you'd really have no way of knowing if the cabbie is taking the long way from JFK to Manhattan.)

Furthermore, it is highly efficient -- and consumer-friendly -- to know that any cab you hail will have the same fare structure as any other cab. The goal in a city like Manhattan or Chicago is to get the most people moved around the city as efficiently as possible. Having cabs pull over and spend time negotiating fare for every ride would tend to eat into efficiency. Furthermore, without any pricing regulation, you would just end up with price gouging at peak times. While libertarians might disagree with anti-price-gouging rules, those kinds of pricing structures tend to be a big problem in a city where people don't own cars. It's one thing to say "wait a little while and you'll get a cab to the airport". It's another thing to say "you won't be able to afford a cab to the airport during rush hour".

This is especially an issue in a tourist-heavy city like NYC or London. Locals would eventually figure out how to make do with an unregulated system, but the tourists would tend to be befuddled and possibly defrauded. That's not good for any business in NYC, even the taxis.

Other regulations exist to make sure that cabbies are required to provide service to everyone, not just white guys in suits.

I'll summarize this way: You'd be hard-pressed to find even a died-in-the-wool libertarian in NYC who thinks it's a bad thing that taxi fares are regulated. Oh, they'll quibble about this or that element of the regulations, but if you said "should they just let the taxi business be a free-for-all?", it would be hard to find someone who'd say "of course, that's how the free market works".

Come to think of it, that's an important thing to discuss. The taxi cab market really isn't a free market. Because you don't have a group of taxis sitting in front of you that you could choose from at any time. You just have the one that happens to pull up next to you. So you already are in a situation that typical free market dynamics don't really apply. I know there are free-market-ideologues that like to believe that's never the case, but they are simply wrong about that.

One thing people are missing, and which I probably should have mentioned explicitly in the article, is that Chicago (and other cities, including New York) strictly limits the number of taxicabs that are allowed to operate in the city. These "taxi medallions" are held by incumbent taxi companies who lobby city hall not to issue new ones. So Uber likely doesn't have the option of just re-registering their black cars as taxicabs.

I also suspect this is why the city is pushing these new rules. Uber figured out a way to run a sedan service that makes it a more attractive alternative to taxicabs. The cab companies don't like the competition, so I suspect they lobbied the city to invent new rules to make it illegal to offer a sedan service that offers taxi-like convenience. I can't think of any conceivable benefit to the consumer from such a rule, but the benefit to the taxi cartel is obvious.

If the city's position were merely "you're operating like a taxicab so you need to comply with taxicab regulations," I think there'd be a lot less backlash. The problem is that you can't comply with taxicab regulations unless you buy a medallion from one of the incumbents.

I think he means where the reporter that wrote that BBC article got his information, since it's not explained. A quick Google search yielded this, but it only cites nebulous "police figures", has a different number, and is for a different year. The number obviously varies from year to year, but without a citation there's no way to know whether the BBC article is made of whole cloth, a misquote from another article, or 100% fact.

Every law that's created is done to stop some behavior that before the law was written was legal. Doesn't matter if it's driving something that sure looks like a cab service but claims that it isn't or if it's the manufacture and sale of LSD.

Are you arguing that passing a law, no matter how just or unjust, is right and we shouldn't be upset about it? If so, no sense arguing.

No, I'm saying that "because it was legal before a law was made" is no reason that something should STAY legal. I think this particular makes some sense. These vehicles are taxis in everything but name, but they aren't covered under the Taxi licensing authority or the Public Passenger Vehicle statutes. Chicago has decided that they don't want these vehicles covered under the PPV statutes, so they are amending them to more clearly define what a PPV is. This has the effect of also defining what a taxi is: a car that charges based on miles travelled/time spent.

Korpo wrote:

ScottTFrazer wrote:

To me they are more properly defining what a cab service is. To you they are "stifling innovation" To they guy that runs Uber they make him want to go Galt.There are plenty of services that let you hail a standard cab from your phone, and all those drivers are specifically licensed and regulated. Tell me again why these guys shouldn't be?

Because their business model (in some way) doesn't fall within the criteria set forth by the city that requires these drivers to be specifically licensed and regulated. Because the business invented a business model that worked within the system in place and broke no laws to provide a product that consumers want.

Great, they didn't break any laws, so no one is being arrested. But that's still not a good reason to say that the law shouldn't be modified to close the loophole that they slipped through.

The guy who runs Uber has plenty of money and (from what I understand) a fair amount of pull in certain circles. He could probably have worked with the city to get his service properly regulated under the PPV statutes, but didn't want to. So now he might become an unlicensed cab service. I don't really have a problem with that.

No they're amending them specifically to make their businesses model obsolete or unprofitable without affecting the incumbents,

I think he means where the reporter that wrote that BBC article got his information, since it's not explained. A quick Google search yielded this, but it only cites nebulous "police figures", has a different number, and is for a different year. The number obviously varies from year to year, but without a citation there's no way to know whether the BBC article is made of whole cloth, a misquote from another article, or 100% fact.

I will still disagree with "straight-up lie" then. The UK police certainly have solid figures on the number of assaults that occur in cabs each year (as they are quite proud that number is decreasing about 20% per year) I see no reason to doubt that they also have been keeping track of what kind of cab those assaults occur in. In London, certainly, the safety of an unlicensed cab is something they discuss very regularly.

This has the effect of also defining what a taxi is: a car that charges based on miles travelled/time spent.

Not really, since one of the solutions provided by the city in the article is that prices can be pre-negotiated, presumably Uber would pre-negotiate a rate based on the distance and time for the trip. Or they can pre-negotiate a flat $100 fee with a refund based on early dropoff/shorter routes. I suspect if they did either of those though, we'd suddenly find a new regulation Uber has to abide by.

ScottTFrazer wrote:

The guy who runs Uber has plenty of money and (from what I understand) a fair amount of pull in certain circles. He could probably have worked with the city to get his service properly regulated under the PPV statutes, but didn't want to.

From the linked Ars article, the guy who runs it got a dispatch license at the request of the city, as he was told that was what he needed. Then he got more citations, sued by the city's taxi companies, etc. etc.

If we define "worked with the city" as comply with requests from the city, then he's done so (according to the article and him, two sides and all that). If we define it as change your business model to one we already have, he has not.

I suspect if they did either of those though, we'd suddenly find a new regulation Uber has to abide by.

You almost make it sound like the government appreciates incrementalism because the frogs they boil will not realize the water is now magically warmer.

Thats preposterous and has never...ever...happened in the United States of America (tm) (c) (sm)

Frankly, at the end of the day. Uber services customers, that have a free choice to ride or decline. The fact that government is trying to pick winners and losers. Again, NEVER has that happened before *cough* Chrysler 1980's bailout, housing bubble, S&L scandal *cough*

Do you live in Chicago? I do. Nothing is stopping people from taking cabs home here, trust me. Try and hail one at last call. They're all completely full.

I did actually live in Chicago just a few years ago. The Chicago taxis suck. Not as bad as my now native Boston taxis (another city desperately protecting its shitty monopoly). It also a pain in the ass to get a shitty taxi in both cities at closing. Why? The fucking city HAS A MONOPOLY ON TAXI SERVICES. They both suck, discourage demand, and can't even supply the shitty demand that they have. Yes, with a monopoly and the inability to set price you not only shitty service, but not enough taxis for the handful of poor bastards who try and get one. Monopolies don't fucking work. I hope Uber pounds the gates until something breaks. It certainly couldn't get any worse.

Thank god Boston finally installed bike stations so I can at least bike home after our pitiful subway system closes at midnight.

ScottTFrazer wrote:

Rindan wrote:

That is a straight up lie.

When that stupid ad hominem article first came out everyone went looking to find the source of that uncited bullshit statistic and not a single person found it.

The article is crap and still not a source. The most it has is another uncited source saying "10 women a month are sexually assaulted". As compared to how many in licensed? 1, 10, 10000?

It doesn't even matter, because that isn't what the fight is over. The regulations Chicago want to push have absolutely nothing to do safety. They are PURELY about price and how to charge passengers.

You cite a 100% ad hominem hit piece that declares Uber evil because a business guy likes Rand (OMG A BUSSINESS GUY WHO LIKES RAND!!111!! HOW RARE!), and then keep on babbling about safety like that has fuck all to do with the regulations being proposed. I'm sorry, what exactly is your interest in desperately protecting corrupt officials and a corrupt monopoly that everyone wants to see dead? Seriously, why exactly is it that the idea of Uber scares the shit out of you so much? Are you afraid if Uber comes in competing taxi's might have to be clean, take you to their destination directly, and not screw you?

Seriously, what exactly is your interest. I am having a really hard time buying that you live in terror of having more options, so you must have some other interest? Are you a corrupt official? Do you own a taxi company? Why is the thought of competition in a universally reviled industry have your panties in such a twist?

No they're amending them specifically to make their businesses model obsolete or unprofitable without affecting the incumbents,

You see vast conspiracy theory, I see a company painting an orange red and calling it an apple.

Opinions are irrelevant and endless without proof - hence yours.

The fact is they are designed to destroy newcomers and competition, your conspiracy theory otherwise does not dispute that fact. Talking about colours rather then real life presents as being delusional.

Laws don’t exist merely to frustrate the business ambitions of coastal hipsters: They also exist to protect the more vulnerable members of society. Back home in London (where such statistics are available), 11 women a month are attacked in unlicensed cabs, and unlicensed drivers are responsible for a horrifying 80 percent of all stranger rapes. If Uber doesn’t have to follow licensing laws, then neither does any Tom, Dick, or Harry who chooses to paint the word “TAXI” on the side of his car, and start offering rides via the Internet.

Laws to protect the public safety and prevent discrimination are one thing.. laws created specifically to prevent viable competitors from entering a market are quite another.

Keep in mind that the drivers are rated, and users see those ratings - and the users are rated, and seen by the drivers. Discrimination, in these systems, is going to be very personalized, rather than a primarily stereotype based. The instant feedback and records of activity make things safer than with a taxi. Many of the big concerns are actually limited purely by the model.

There are a number of reasons why a ratings system like this is less good than traditional regulation. Here's one:

Suppose that someone is assaulted in one of these cabs, as long as the driver only assaults 1 person for every 20 that leave a good review, they are going to have 5 stars. Who do I report this to? In Chicago you call 311 on your phone. These regulations are in place because something demonstrated a need for it in the past.

If this service is truly better, then it should still be able to profitable with the same regulation that existing cab companies operate under.

Or on a less drastic level it will turn into an Ebay like situation "You leave me good feedback or I'll give you horrible feedback so nobody will do business with you".

Do you live in Chicago? I do. Nothing is stopping people from taking cabs home here, trust me. Try and hail one at last call. They're all completely full.

I did actually live in Chicago just a few years ago. The Chicago taxis suck. Not as bad as my now native Boston taxis (another city desperately protecting its shitty monopoly). It also a pain in the ass to get a shitty taxi in both cities at closing. Why? The fucking city HAS A MONOPOLY ON TAXI SERVICES. They both suck, discourage demand, and can't even supply the shitty demand that they have. Yes, with a monopoly and the inability to set price you not only shitty service, but not enough taxis for the handful of poor bastards who try and get one. Monopolies don't fucking work. I hope Uber pounds the gates until something breaks. It certainly couldn't get any worse.

Thank god Boston finally installed bike stations so I can at least bike home after our pitiful subway system closes at midnight.

ScottTFrazer wrote:

Rindan wrote:

That is a straight up lie.

When that stupid ad hominem article first came out everyone went looking to find the source of that uncited bullshit statistic and not a single person found it.

The article is crap and still not a source. The most it has is another uncited source saying "10 women a month are sexually assaulted". As compared to how many in licensed? 1, 10, 10000?

It doesn't even matter, because that isn't what the fight is over. The regulations Chicago want to push have absolutely nothing to do safety. They are PURELY about price and how to charge passengers.

You cite a 100% ad hominem hit piece that declares Uber evil because a business guy likes Rand (OMG A BUSSINESS GUY WHO LIKES RAND!!111!! HOW RARE!), and then keep on babbling about safety like that has fuck all to do with the regulations being proposed. I'm sorry, what exactly is your interest in desperately protecting corrupt officials and a corrupt monopoly that everyone wants to see dead? Seriously, why exactly is it that the idea of Uber scares the shit out of you so much? Are you afraid if Uber comes in competing taxi's might have to be clean, take you to their destination directly, and not screw you?

Seriously, what exactly is your interest. I am having a really hard time buying that you live in terror of having more options, so you must have some other interest? Are you a corrupt official? Do you own a taxi company? Why is the thought of competition in a universally reviled industry have your panties in such a twist?

I notice you haven't shown any proof that the articles in question are false, you just dismiss them as "crap" and expect everyone to believe you. And you know what, given a choice between a fairly respected source like the BBC or random guy with an agenda on the internet, I'm gonna hafta go with the BBC.

One thing people are missing, and which I probably should have mentioned explicitly in the article, is that Chicago (and other cities, including New York) strictly limits the number of taxicabs that are allowed to operate in the city. These "taxi medallions" are held by incumbent taxi companies who lobby city hall not to issue new ones. So Uber likely doesn't have the option of just re-registering their black cars as taxicabs.

I also suspect this is why the city is pushing these new rules. Uber figured out a way to run a sedan service that makes it a more attractive alternative to taxicabs. The cab companies don't like the competition, so I suspect they lobbied the city to invent new rules to make it illegal to offer a sedan service that offers taxi-like convenience. I can't think of any conceivable benefit to the consumer from such a rule, but the benefit to the taxi cartel is obvious.

If the city's position were merely "you're operating like a taxicab so you need to comply with taxicab regulations," I think there'd be a lot less backlash. The problem is that you can't comply with taxicab regulations unless you buy a medallion from one of the incumbents.

"I'm going to stop being a registered, licensed taxi, and only use Uber so I can stick to picking up Graham Wellington."

Are you suggesting that Broadway Cab Company (or whatever it is in your town) will suddenly close down and reopen affiliated with Uber, or are you suggesting that every cab out there is privately owned and operated?

Because I'm pretty sure neither is the case.

"Prices are about 50% to 75% higher than prices charged by conventional taxicabs."

Uber has only been in Chicago for a year or so. You wouldn't rather drive around wealthy white people at 1.5x-2x the normal Chicago rate?

"As a Black man from the 'hood, I approve of charging rich Whities 50-75% more for ride; it helps stick it to the Man and redistribute wealth to exploited drivers."

Regarding the "need to negotiate" a fair, that's the way things work where I live now, here in San Salvador, El Salvador. I tell the cab driver where I need to go, or what I need to do, he quotes me a price, and I either reject or negotiate or accept. There are reasonably standard rates based just on the fact that, like with anything, pricing tends to standardize if you want to stay in business.

In the situation where I want to keep the cab longer, or want to go elsewhere, we just discuss it. I have NO idea how much of the service relies on an inflexible computerized system for Uber however.

I am glad that works well for you. However it is worth considering that in some areas, especially North America, haggling and negotiating are not a normal or accepted part of commerce. The price posted is the price you pay, end of discussion. Many people in such areas find that process daunting, intimidating and exhausting, and would be glad for a service based on a fixed per-time, per-distance or hybrid model as Uber proposes.

As a person that lives in Chicago, without a car, I will be highly annoyed (but not surprised) if this goes through and Uber is forced out.

I cannot tell you how many awful cab experiences I've had living here over the past seven years. Twice I've been physically threatened by a cab driver for attempting to pay with a credit card (which the City of Chicago requires they accept) and refusing to let the driver take me to an ATM (with the meter running, of course).

1: How is Uber's service not a taxi service? It's an individual summoned car with a driver, providing point-to-point, on-demand service, and charged proportionate to the ride in question. Just because there isn't a light on top, it's suddenly not a taxi service? (Which is not commentary, one way or the other, on whether they should be allowed to operate in Chicago, or whether Chicago needs fewer/more/different taxi options.)

2: Absent regulation, consumers get gouged, taxi service isn’t reliably available, and/or taxi drivers get ghettoized into a poverty wage. (And that’s not even getting into issues like discrimination and unserved neighborhoods.) If you’re not in the TL;DR crowd, read on for explanation of those claims.

From the inside looking out, one of the issues with taxi service in general is the balance between supply and demand in a tragedy-of-the-commons situation, on two levels. The vast majority of cabbies are not employees of the taxi companies, they are "independent contractors" who pay to lease the cab from the company, often a large flat rate and then a small %age of fares on top of that. If the companies I’m familiar with are representative, that flat fee dominates the total lease fee. The cabbie then gets to keep whatever money they make above and beyond the lease fee. [Honestly, I think it’s mostly a giant tax dodge on the part of taxi companies—avoiding the expense of a significant payroll department, and shifting a 7% tax of all the income directly to the cabbies.]

Absent any regulation, it is to the advantage of the cab company to put as many cabs on the road as possible. That's because their costs and income are both directly proportional to the number of cabs—more cabs, more lease fees, and it doesn’t even matter if there are more fares because that’s not how the cab company makes its money. At the same time, it is to the cabbie’s advantage to have only the bare minimum number of cabs on the road—just enough that customers aren’t pissed off enough from waiting too long that they stop using cabs or stop tipping. And it is to the cabbie’s advantage to work as much as they possibly can, because their income is roughly proportional to the number of hours they work in a given shift, and the number of shifts they work. So you have an entire fleet of cabbies who all want to work more shifts, and want all the other cabbies to work fewer shifts.

Now, on the city level, it is to a cab company’s advantage to put as many cabs on the road as possible, to capture the largest share of the rides. But if every company behaves this way, there are too many cabs sitting idle. In the short run, however, that doesn’t matter to the cab company—they’re getting their money either way—but in the long run that will push demand for being a cabbie down, and they’ll have trouble getting enough drivers. So, again, every cab company wants to put more cabs on the road, but wants all the other cab companies to put fewer on the road.

Now, back to being a cabbie. So, you’ve just paid some money—let’s say $150—to use the taxi for your shift. On a normal day, maybe you take in $300 in fares, so you go home with a tide $150 in your pocket—for a typical cab shift of 12 hrs, that’s $12/hr, which isn’t a bad wage. Of course, no taxes whatsoever have been paid on that, so you’re liable for not only income but also social security and the employer’s portion of social security—let’s approximate that as 1/3rd. So now you’re making $100. Still, for after-tax takehome, that’s not too bad for a (long) day’s work. But, now there are more taxis on the road. Let’s say 11% more, so you have a 10% drop in fares. But your lease fee hasn’t appreciably changed, so now you’re taking home $120, a 20% drop, and that translates to about $80 once you pay your taxes. And the more taxis are on the road, the worse it gets. A 25% increase in taxis translates to a 20% drop in fares, but a 40% drop in income for the cabbies, dropping our hypothetical take-home to $90, $60 after taxes. Or, dropping the annual income from a perfectly-livable $38k down to a scraping-by $23k.

Now, these exact numbers are made up, but they’re reasonable approximations based on recent-ish data. Likewise, the exact proportions vary, but the general problem that a shortage of fares hits the cabbies hard, and the cab companies much less so, is true for many (most?) taxi companies. But in the long run, people will stop wanting to be cabbies, and that’s not good for the city. And most cities also consider it bad if there is a whole class of people who are employed and yet still not getting by. So most cities do something to limit the number of taxis on the road, because absent those limits, the incentives for the cabbies are to work more until they hit a tragedy-of-the-commons crash, and the incentives for the taxi companies are to put out more cabs until they hit a tragedy-of-the-commons crash. In some cities, the only regulation is simply only licensing one company—if all the taxis are run by one company, cabbies have more leverage against the company, the company has more control of the situation, and everyone’s incentives better align with the populace’s. Most places instead (or in addition) regulate the fares, both for reasons others have stated (protecting consumers) and to protect the cabbies, so that they’re not exploited by the cab companies, and to prevent the ride-service equivalent of dumping to undercut and drive out competitors.

Oh, to address some other comments--which I've frequently heard from all over the country, as well as in this thread--there's a reason you can't get a taxi at closing time, and a reason why there aren't more taxis at that time. The demand for taxis is highly variable depending on the time of day. But, because it takes time to get people where they're going, there's no way that, if you put enough taxis on the road at the peak times they could make enough money. That bartime ride home is gonna cost you $100, because you're now paying 1/2-1/3 of the cabbie's total daily income with that one ride.

The long version: deregulating the market will put as many taxis on the road as are needed, but they'll also charge what they need to survive. You want a 10 min ride at bartime? Well, the cabbie can only provide, let's say, 3 of those before people give up waiting and find other means to go home (don't forget that your 10min ride means, possibly, another 5-10min drive for the cabbie before he gets to another bar patron that needs a ride). And, even then, that 3rd person has waited 20-40 min out in the cold after the bar is closed for their ride. Now, we've just put hundreds of extra cabs out to give everyone a ride home at bartime in a timely fashion. But most of the rest of the time (possible exceptions are morning and evening rushhour), there is nowhere near this level of demand. Even if all those people went to the bar via cab, they did so over the span of several hours, spreading out the demand. So now we have, let's say, 10x as many cabs, but for 23 hrs of the day, there is no more demand than there used to be. so they're all making 1/10th the fares, which probably means something like 1/20th the income--which is functionally nothing. Ah, but there's that bar rush to make up the difference! Well, that's only a few fares per taxi, even when there is a shortage of taxis, because people will only wait so long.

Or, you just put extra taxis on when they're needed. So now you're asking a bunch of people to work a 3-hr shift in the middle of the night. And you don't need them the rest of the time. Sure, working 10-15 hrs/week sounds like a great gig--but you still have to get up, go to work, etc. So you're spending, say, 1.5 hr getting to and from work for a 2- or 3-hr shift. That's sorta silly. And either you have to make a lot more money per hour, or you need to have another job, or you're firmly in the "working poor" camp. Plus, on a short shift, if anything goes wrong, you make no money--with a long shift, a snafu gives you plenty of other hours to make up for a problem. And, again, "pure" supply-n-demand means that those bartime rides--highly in demand--should be a *lot* more expensive than they currently are. It's a variation on the cheap/good/quick triangle: with taxi service it's cheap and quick most of the time, but at bartime we've artificially constrained it to be cheap, so it's not gonna be quick.

First, there's various licensing requirements aside from the fare regulation. The cities have an interest in making sure that riding in a cab is safe and that whatever the fare structure may be, the cabbie doesn't screw the customer. For example, even if cabs were allowed to set their own fares, you'd want a system to make sure the meters were accurately tallying the agreed fare.

That can easily be done by a private company (like UL)- a person could chose to want to ride in an approved meter.

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But it even goes beyond that. NYC ended up implementing flat-rate fares to/from some of the airports, because so many tourists were complaining that they would end up charged 3-4 times the appropriate cost of the trip. (If you're not from NYC, you'd really have no way of knowing if the cabbie is taking the long way from JFK to Manhattan.)

With smart phones or even pre looked at Google Maps, people can get an estimate of the fare.

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Furthermore, it is highly efficient -- and consumer-friendly -- to know that any cab you hail will have the same fare structure as any other cab. The goal in a city like Manhattan or Chicago is to get the most people moved around the city as efficiently as possible. Having cabs pull over and spend time negotiating fare for every ride would tend to eat into efficiency. Furthermore, without any pricing regulation, you would just end up with price gouging at peak times. While libertarians might disagree with anti-price-gouging rules, those kinds of pricing structures tend to be a big problem in a city where people don't own cars. It's one thing to say "wait a little while and you'll get a cab to the airport". It's another thing to say "you won't be able to afford a cab to the airport during rush hour".

With less regulations, and hence a much barrier to entry, you will have many more companies all competing. And with the internet, people can research which company is the best.

[/quote]I'll summarize this way: You'd be hard-pressed to find even a died-in-the-wool libertarian in NYC who thinks it's a bad thing that taxi fares are regulated. Oh, they'll quibble about this or that element of the regulations, but if you said "should they just let the taxi business be a free-for-all?", it would be hard to find someone who'd say "of course, that's how the free market works".[/quote]

Then they aren't a died-in-the-wool libertarian if they don't believe the regulations should be eliminated entirely.

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Come to think of it, that's an important thing to discuss. The taxi cab market really isn't a free market. Because you don't have a group of taxis sitting in front of you that you could choose from at any time. You just have the one that happens to pull up next to you. So you already are in a situation that typical free market dynamics don't really apply. I know there are free-market-ideologues that like to believe that's never the case, but they are simply wrong about that.

A free market is one where there is not government regulation. Saying that just because at that moment in time you can't choose (when you can by phone or internet), or whatever other excuse statists use to justify unnecessary regulations, doesn't make it true. Free market dynamics ALWAYS apply. Even in taxis. The problem is that you ignore the fact that regulations keep out more companies- and more innovation. Which is exactly what is happening here- its just more obvious.

2: Absent regulation, consumers get gouged, taxi service isn’t reliably available, and/or taxi drivers get ghettoized into a poverty wage. (And that’s not even getting into issues like discrimination and unserved neighborhoods.) If you’re not in the TL;DR crowd, read on for explanation of those claims.

No, consumers don't get gouged- they get a service that they deem is fair to pay for. With regulation, they get a service that is cheaper but doesn't meet their needs. Regulations also reduce the amount of service, and make it poorer for most (but of course not all) people.

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snip long but informative state of current taxi cab economy

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Now, these exact numbers are made up, but they’re reasonable approximations based on recent-ish data. Likewise, the exact proportions vary, but the general problem that a shortage of fares hits the cabbies hard, and the cab companies much less so, is true for many (most?) taxi companies. But in the long run, people will stop wanting to be cabbies, and that’s not good for the city. And most cities also consider it bad if there is a whole class of people who are employed and yet still not getting by. So most cities do something to limit the number of taxis on the road, because absent those limits, the incentives for the cabbies are to work more until they hit a tragedy-of-the-commons crash, and the incentives for the taxi companies are to put out more cabs until they hit a tragedy-of-the-commons crash.

That's all interesting, but the problem is you are looking at how it is set up *due to current regulations*! If there was no regulations, there would be more cabs. They could charge a fare that would let them meet their expenses. They wouldn't have to be a part of a company and do all that leasing crap. The free market would innovate out of that stupid system, which is that way because of the restrictions!

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In some cities, the only regulation is simply only licensing one company—if all the taxis are run by one company, cabbies have more leverage against the company, the company has more control of the situation, and everyone’s incentives better align with the populace’s.

No, they don't align better with the populaces, but with the government and that company. If that company sucks, guess what too bad! In a free market, there will be many companies to choose from.

Oh, to address some other comments--which I've frequently heard from all over the country, as well as in this thread--there's a reason you can't get a taxi at closing time, and a reason why there aren't more taxis at that time. The demand for taxis is highly variable depending on the time of day. But, because it takes time to get people where they're going, there's no way that, if you put enough taxis on the road at the peak times they could make enough money. That bartime ride home is gonna cost you $100, because you're now paying 1/2-1/3 of the cabbie's total daily income with that one ride.

The long version: deregulating the market will put as many taxis on the road as are needed, but they'll also charge what they need to survive. You want a 10 min ride at bartime? Well, the cabbie can only provide, let's say, 3 of those before people give up waiting and find other means to go home (don't forget that your 10min ride means, possibly, another 5-10min drive for the cabbie before he gets to another bar patron that needs a ride). And, even then, that 3rd person has waited 20-40 min out in the cold after the bar is closed for their ride. Now, we've just put hundreds of extra cabs out to give everyone a ride home at bartime in a timely fashion. But most of the rest of the time (possible exceptions are morning and evening rushhour), there is nowhere near this level of demand. Even if all those people went to the bar via cab, they did so over the span of several hours, spreading out the demand. So now we have, let's say, 10x as many cabs, but for 23 hrs of the day, there is no more demand than there used to be. so they're all making 1/10th the fares, which probably means something like 1/20th the income--which is functionally nothing. Ah, but there's that bar rush to make up the difference! Well, that's only a few fares per taxi, even when there is a shortage of taxis, because people will only wait so long.

Or, you just put extra taxis on when they're needed. So now you're asking a bunch of people to work a 3-hr shift in the middle of the night. And you don't need them the rest of the time. Sure, working 10-15 hrs/week sounds like a great gig--but you still have to get up, go to work, etc. So you're spending, say, 1.5 hr getting to and from work for a 2- or 3-hr shift. That's sorta silly. And either you have to make a lot more money per hour, or you need to have another job, or you're firmly in the "working poor" camp. Plus, on a short shift, if anything goes wrong, you make no money--with a long shift, a snafu gives you plenty of other hours to make up for a problem. And, again, "pure" supply-n-demand means that those bartime rides--highly in demand--should be a *lot* more expensive than they currently are. It's a variation on the cheap/good/quick triangle: with taxi service it's cheap and quick most of the time, but at bartime we've artificially constrained it to be cheap, so it's not gonna be quick.

I really don't see how this is a great defense for regulations. Shouldn't there be a shift of more cabs when there is more business? So they only work for a few hours- so what? Aren't we worried about employment right now? That could be a great job for college kids (who are up anyway) to make some extra money. Or any number of other people who need extra money. Who are you to say that they shouldn't have the choice to make some extra money, and provide a needed service? Let the people themselves decide if they want do that.

Will they be more expensive? Perhaps. But so what? If there is more demand then supply, prices might start off high. Then as more companies see the high prices, they'll get involved, increasing supply to meet demand. Companies will have to reduce prices to compete. Eventually it will all stabilize. It may be higher, it may not. But let's find out, instead of pretended we know what will happen.

You're points are all about protecting the cab companies and not allow what consumers want, under the guise of protecting consumers. Let people decide for themselves. I know it sounds scary, but its actually the best system.

One thing people are missing, and which I probably should have mentioned explicitly in the article, is that Chicago (and other cities, including New York) strictly limits the number of taxicabs that are allowed to operate in the city. These "taxi medallions" are held by incumbent taxi companies who lobby city hall not to issue new ones. So Uber likely doesn't have the option of just re-registering their black cars as taxicabs.

I also suspect this is why the city is pushing these new rules. Uber figured out a way to run a sedan service that makes it a more attractive alternative to taxicabs. The cab companies don't like the competition, so I suspect they lobbied the city to invent new rules to make it illegal to offer a sedan service that offers taxi-like convenience. I can't think of any conceivable benefit to the consumer from such a rule, but the benefit to the taxi cartel is obvious.

If the city's position were merely "you're operating like a taxicab so you need to comply with taxicab regulations," I think there'd be a lot less backlash. The problem is that you can't comply with taxicab regulations unless you buy a medallion from one of the incumbents.

That's sounds like 1 crappy system if ALL the medallions are somehow held by incumbents. Isn't there any kind of (regularly reviewed) system that distributes the medallions in a open, fair manner ?

I am typically against intrusive regulation, but one has to ask, why is there taxi regulation in the first place?

First, there's various licensing requirements aside from the fare regulation. The cities have an interest in making sure that riding in a cab is safe and that whatever the fare structure may be, the cabbie doesn't screw the customer. For example, even if cabs were allowed to set their own fares, you'd want a system to make sure the meters were accurately tallying the agreed fare.

But it even goes beyond that. NYC ended up implementing flat-rate fares to/from some of the airports, because so many tourists were complaining that they would end up charged 3-4 times the appropriate cost of the trip. (If you're not from NYC, you'd really have no way of knowing if the cabbie is taking the long way from JFK to Manhattan.)

Furthermore, it is highly efficient -- and consumer-friendly -- to know that any cab you hail will have the same fare structure as any other cab. The goal in a city like Manhattan or Chicago is to get the most people moved around the city as efficiently as possible. Having cabs pull over and spend time negotiating fare for every ride would tend to eat into efficiency. Furthermore, without any pricing regulation, you would just end up with price gouging at peak times. While libertarians might disagree with anti-price-gouging rules, those kinds of pricing structures tend to be a big problem in a city where people don't own cars. It's one thing to say "wait a little while and you'll get a cab to the airport". It's another thing to say "you won't be able to afford a cab to the airport during rush hour".

This is especially an issue in a tourist-heavy city like NYC or London. Locals would eventually figure out how to make do with an unregulated system, but the tourists would tend to be befuddled and possibly defrauded. That's not good for any business in NYC, even the taxis.

Other regulations exist to make sure that cabbies are required to provide service to everyone, not just white guys in suits.

I'll summarize this way: You'd be hard-pressed to find even a died-in-the-wool libertarian in NYC who thinks it's a bad thing that taxi fares are regulated. Oh, they'll quibble about this or that element of the regulations, but if you said "should they just let the taxi business be a free-for-all?", it would be hard to find someone who'd say "of course, that's how the free market works".

Come to think of it, that's an important thing to discuss. The taxi cab market really isn't a free market. Because you don't have a group of taxis sitting in front of you that you could choose from at any time. You just have the one that happens to pull up next to you. So you already are in a situation that typical free market dynamics don't really apply. I know there are free-market-ideologues that like to believe that's never the case, but they are simply wrong about that.

But even if you want to create a taxi service as a utility, why should it prevent competing services? People can easily tell the difference between an officially marked car and something else. There are lots of public services we provide for, and in some cases subsidize because we intend a certain social outcome, that sill have competing private counterparts. Schools and the Post office for example. We just need to be honest, admit we are creating a utility for a social goal and accept performing a social goal may require subsidy.

Uber has carefully cultivated these regulatory dramas to create sympathy for their brand among Internet demogogues (that's us!). Their position hasn't been "We should figure out regulations that work for everyone." It's been "LULZ we don't need rules and we'll send the Internet to abuse the taxi commissioner if you disagree".

I hope that reporters covering Uber start making this controversy-as-PR strategy part of their reporting, because so far they've played the pundits like a harp.

The two editor's picks were good. Together they beg the next question: Please fully explain the traditional reasoning for limiting the # of taxicabs in a city.

Taxi drivers don't make a lot of money as it is (12 hour shifts are the norm), in part because fares are -by regulation - kept low. Keeping the number of cabs down props up their wages. We want a system where experienced drivers can stay on the job as a career.

Reference: I live in Chicago, but also work in countries with unlicensed cabs. It's a bad scene.

Together they beg the next question: Please fully explain the traditional reasoning for limiting the # of taxicabs in a city.

Because the half dozen or so companies that hold 95% of the medallions make huge contributions to Chicago politicians so they can retain their oligopoly on the market. They have heavily lobbied and paid off the entities in charge of expanding or contracting the number of cabs in the city.

Personally I use Uber here in Chicago if at all possible over a taxi cab. The medallion cab drivers are for the most part terrible in this city. They quite often lie and bully passengers who attempt to pay with credit cards into forking over cash or making them stop at an ATM. Many talk persistently on the phone while driving making for a dangerous situation and show little regard for the comfort or requests of their customers. The service they provide is in many instances unacceptable but because of the way the leasing arrangements are here there is no accountability or recourse to penalize bad drivers.

Uber is filling a hole in the market and they did so legally. It caters to a clientele that is willing to pay for convenience and a higher quality level of service. They did not skirt the law nor did they operate against any existing ordinances that prohibited them from offering their transportation services.

What we're seeing now is the United Taxi Community Council's, whom are every bit a taxi union, efforts to pressure city government to pass laws that would cease Uber's ability to operate within city limits and given the stranglehold on new medallions there would never be a way for the company to provide service here again. I don't think anyone is surprised. From the teacher's union to taxi cabs the power of organized labor to keep Chicago politicians in their pockets is so deeply entrenched that we'll never see any progress or innovation in many areas.This is the price for having a city and state run by one political party.

Perfect work around for this little tid bit of legislation:Charge a preset rate based upon fuel quantity used. Simple device to install, and really accomplishes the same task. Same thing as the meter, but not tied to time or distance. Bouyah bitches!

Furthermore, it is highly efficient -- and consumer-friendly -- to know that any cab you hail will have the same fare structure as any other cab.

Chuckstar wrote:

I'll summarize this way: You'd be hard-pressed to find even a died-in-the-wool libertarian in NYC who thinks it's a bad thing that taxi fares are regulated.

Very well put, Chuckstar. You make a solid case for regulation in the traditional taxi market. However, app-based taxi services represent a paradigm shift in that users can know the precise distance and time rates before ordering (an impossibility when physically hailing a cab in an unregulated market).

One important point, for better or worse, is that the proposed regulation would potentially shift risk from the consumer to the business (Uber). For instance, Uber could offer fixed fare rates that mimic distance/time rates by analyzing live traffic data and having users enter a final destination when booking a cab. If traffic was worse than expected, Uber would eat the cost. If better, Uber would benefit.

A libertarian would say that the government shouldn't force such a scenario, and in the free market if customers demand such a service, businesses will cater. And since the high information cost of learning rates while physically hailing a cab do not apply, the government should keep mum.

1: How is Uber's service not a taxi service? It's an individual summoned car with a driver, providing point-to-point, on-demand service, and charged proportionate to the ride in question.

Is that what defines a taxi though? Because how is what you described different than a limo or car service?

-Is it that the car is individually summoned? Is it illegal to call a known limo driver directly for a ride? -Is it how long you have to wait? If you could get a limo to you in 10 minutes would it be a considered a taxi?-Is it the proprtianate fare? Don't limo/car services charge by time and or distance albeit up front?-Is it whether or no you are allowed to pick up fares that hail you? Near as I can tell, this is the difference.

Seems to me like Uber is more of a car service that uses a meter to determine a fare. Any prearranged price would be based on anticipated time/distance anyways. All the meter does is make the transaction and price that much more efficient and accurate. Unless the argument is that using an app is more like waiving your arm to hail a ride vs calling a service to send you one. Arguable but I'd say using a phone is more like using a phone.

If they want to change the definition of a taxi to include Uber, it seems logical to remove the "side of the road hailing" from the taxi definition and consider any payed passenger vehicle a taxi. Of course this would disrupt existing car/limo services.

So basically, they want to outlaw the use of meters on car/limo services. Interestingly enough, there appears to be only one service like that that uses meters. And it's a new comer in highly monopolized market.

This seems to me to be a predatory regulation targeted at one company who's not in the good-old-boys club.

That's how I read the article anyways. Unless I'm mistaken in my difference of a taxi vs limo. If I am, I'd like to hear a lay man's definition of what separates a limo service from a taxi and how Uber fits the taxi definition where limos don't.

1: How is Uber's service not a taxi service? It's an individual summoned car with a driver, providing point-to-point, on-demand service, and charged proportionate to the ride in question.

Is that what defines a taxi though? Because how is what you described different than a limo or car service?

MCC 9-112 defines "taxicab" as:

“Taxicab” means a public passenger vehicle for hire only at lawful rates of fare which,when it is being operated between a point of origin and a destination are as recorded and indicated by ataximeter or at rates as set forth in this chapter.

“Taximeter” means any mechanical or electronic device which records and indicates acharge or fare measured by distance traveled, waiting time and extra passengers.

Based on this, I don't really see how it was ever legal to Uber to run their service at all. All the proposed change is doing is saying that a service that uses taximeters or taxi-like rates is NOT a PPV. PPV regulations are here: